Reference no: EM133094304
Problem - Mon-Royal Co. purchased equipment on January 1, 2017 for $3,000,000 and paid cash for $2,000,000 and issued a 2-year note payable for the rest. Mon-Royal Co. also paid $20,000 cash for shipping and installation of the equipment.
Other information
Estimated useful life of the equipment at the time of purchase, 10 years.
Estimated salvage (residual) value at the time of purchase, $320,000.
The company uses the straight-line method of depreciation.
The company's fiscal year coincides with the calendar year.
On January 1, 2019 the equipment needed a major repair. The company paid $400,000 to repair the equipment. Based on an expert' opinion, the repair will increase the useful life of the equipment for two years, however the residual value remains the same.
On July 1, 2020 the company sold the equipment for $2,400,000 cash.
Required -
1. Prepare the journal entry to record the major repair
a. Dr. Repairs expense 400,000; Cr. Cash $400,000.
b. Dr. Equipment $400,000; Cr. Accounts Payable $400,000.
c. Dr. Equipment $400,000; Cr. Cash $400,000.
d. Dr. Repairs and maintenance expense $400,000; Cr. Cash $400,000.
2. What is the necessary journal entry to record depreciation expense for 2019
a. Dr. Depreciation Expense $256,000; Cr. Accumulated Depreciation $256,000.
b. Dr. Depreciation Expense $256,000; Cr. equipment $256,000.
c. Dr. Depreciation Expense $270,000; Cr. Accumulated Depreciation $270,000.
d. None.